FX WEEKLY POSITIONING BY LLOYDS TSB

EUR short positions vs the USD were scaled back a fraction over the past week, halting the accumulation of bearish positions of the past 3 weeks.

Summary

1. EUR aversion stabilises, GBP shorts near 4-month high

2. CAD longs near 2-month high despite reduction in long crude WTI exposure

3. Specs building long JPY positions at fastest rate since last October


Comment

1/ EUR short positions vs the USD were scaled back a fraction over the past week, halting the accumulation of bearish positions of the past 3 weeks. Though in absolute terms the level of short positioning is still at comparatively modest levels compared to the peaks observed last summer, on a relative basis short positions remain overextended and therefore put spot at risk of a counter-trend move. The successful issuance for instance of about 22bln EUR bond sales in the euro zone this week could cause a snap back and force participants to cover. EUR/USD risk reversals have stayed quite stable through the first week of 2011.

2/ Speculative investors expressed a more negative GBP/USD view by raising short positions to the highest level since 14 Sep-10. Though GBP positioning has been negative for the last 6 weeks, in absolute terms we are still some way removed from last year’s highs. Relatively speaking, short GBP positioning is not as stretched compared to the EUR, suggesting that a short covering rally in EUR/USD could drag EUR/GBP along.

3/ AUD and CAD positioning moved in opposite directions over the past week, with specs modestly adding to their CAD holdings and lifting exposure to the highest level since 16 Nov-10. By contrast, long AUD positions were trimmed for the first time in 5 weeks. The expression of bullish views in CAD comes despite the modest pullback in long crude WTI positions to a 5-week low. On the whole, CAD and AUD positions are still in the higher percentiles, adding scope for a retracement in spot vs the USD if risk appetite fades.

4/ The biggest move last week was registered for the JPY, with the rate of accumulation of JPY longs reaching levels last seen in the early stages of Q4-10. Though net long positioning is still some way below the 2010 highs, the 5 percentage point move in USD/JPY percentile to 8.80 makes spot more vulnerable to a counter trend move. Having said this, a fresh blow to risk appetite would probably cause specs to pile in further into JPY longs, though this is not currently borne out by the fairly stable risk reversals. Long CHF positioning vs the USD stabilised in the past week and runs close to the Q4-10 average of 12,500 contracts.

Full Report